Stock Market

Why Start Trading Currencies?

Trading currencies has been attracting more and more retail investors in recent times. Foreign exchange or forex is an OTC (over the counter) market where anybody can get involved. All you need is an internet connection, a good system or the time to learn and develop your own system, and some money to invest.

You do not necessarily need very much money. Brokers now offer mini forex trading accounts and even micro forex trading accounts which you can open with just a couple hundred dollars. However, it is better to have a little more, even if you do not put it all into the account in the beginning. Forex trading is risky and if you only have a couple hundred dollars to spare, you probably should be doing something safer with it.

But assuming that you have the funds and you have decided that you want to make money with some kind of financial trading, let’s look at why this could be a better option for you than stock or commodity trading methods.

1. No commissions and no fees.

If you have experience of the stock market you know how your profits can be eaten away by brokerage, exchange and even government fees. The free world nature of the forex market means that you do not have to pay any of these. There are no middle men. Brokers make their money through the spread, which is the difference between the bid and ask prices of a currency.

2. No fixed lot size.

In commodity futures markets, the size of a lot or contract is set by the exchange and you cannot buy or sell less than one lot. But in spot forex trading you can theoretically set your own lot size. Brokers tend to use their own standard sizes but if you know that you will want to trade small amounts you can look for a broker who offers small or fractional lots.

3. It’s a 24 hour market, five days a week.

From the beginning to the end of the global business week, the forex market never sleeps. This is great for people who need to trade outside of normal business hours. You can go work for the boss from 9 to 5, come home and start trading currencies in the evenings. Or you can start whatever time you wake in the morning, even if it is 5 a.m.

4. High leverage.

Forex brokers will offer up to 200 times your margin deposit in leverage. This means that you have the chance to make a lot of money from only a small deposited fund. You only need $50 to control $10,000 dollars in a trade. Provided you have good risk management and always remember that high leverage also means high risk, this can be a very attractive option.

5. A huge market with high liquidity.

The forex market is huge, so there is no chance of any single institution getting control of it. Even the banks, big as they are, have limited influence. Insider trading is not the issue that it can be in stock trading. And high liquidity means that you can always make the trade at the moment or the price that you want. You are never stuck unable to close a trade, and you can even set an automated trading system to close your position for you at a certain level of loss or profit.

6. Free tools and information.

Brokers are going all out to attract more retail traders and the competition between them is great for you as an investor. It is easy to find a good broker who will offer you a demo account where you can practice your trading, hone your skills and learn the basics before you start using real money. They will also give you the charts that you need to identify trends, and access to breaking forex news, all for free.

7. Low start up costs.

A computer with a high-speed Internet connection is all that is needed to begin trading currencies. If you want to use a robot for your trading you can find one for $100 to $200. A lot of information on trading currencies including advice on systems is available for free online.

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Thursday, June 18th, 2009 Introduction No Comments

Electronic Currency Trading: How It Works

Electronic currency trading is simply a way of dealing in currency exchange online. You may have seen it described as foreign exchange, forex or fx trading. It is something that appeals to many people who are looking for a way to make money on the internet using their home computer.

Forex is a little like stock trading, although the market itself is very different. You have the same aim of buying something hoping the price will rise. But with forex you are always dealing with money so you can also make money from a falling price, by exchanging out of the falling currency into a steady or rising currency.

Imagine for example that you are trading on the currency pair EUR/USD. This is a common combination for beginners. The US dollar and euro are most traded currencies and there is a lot of information available to help you, so it is a good choice to start.

With this pair you can choose to either buy or sell euros. If you place a buy order, this is called ‘going long’. You would do this if you think the euro will strengthen or rise in value (or the dollar will fall).

If you place a sell order, that is ‘going short’. You would do this if you think the dollar will strengthen (or the euro will weaken).

Your aim is to make a profit by closing the trade when the price goes the way that you anticipated. Closing the trade would involve selling euros if you had gone long, or buying them if you had gone short.

Of course, there is a risk. The price could go the wrong way, and you could make a loss. So it is important to have good information and a profitable trading system.

You do not need a lot of money to get started with electronic currency trading. Many brokers will let you begin with a couple hundred dollars, although it is better if that is not all the money that you have in the world!

Forex trading involves margins. This means that you can place orders for a lot more money than you actually have. You do this through a broker who will guarantee the balance of the order. They know you will be closing the trade at some time and if one currency is falling, another is rising. Currency values are relative, so it is not possible for all currencies to crash in the way that all stocks can crash.

Currencies can be very volatile but you can use stop losses to ensure that you do not lose more than you are willing to risk. Some brokers operate limited risk accounts where they will automatically close your trade if you lose the balance of your account. This means you do not have the dreaded margin calls which can be so disastrous for stock traders.

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Tuesday, June 9th, 2009 fx trading software, Introduction No Comments